Many now struggling businesses and individuals are worried about paying for rent and food. Legal bills are likely very low on the priority list. Attorneys, as in other economic downturns, need to keep a close watch on getting paid. Clients that were financially sound just a few short weeks ago are now in financial purgatory. If you do not get paid, how will you be able to pay your staff, your rent, support your families, or, most importantly, your malpractice insurance? So, it may seem like a logical next step to collect on unpaid legal fees. However, suing clients for unpaid legal fees is going to be a growing malpractice issue.
Making a practice of suing clients for unpaid legal fees is like playing the lottery. The more you sue, the greater your chances of getting a retaliatory malpractice claim or disciplinary complaint.
An attorney may state, “I want to get paid for the work that I do, so why does my attorney malpractice insurer care?”
Fee suits of clients are a leading cause of attorney malpractice claims. From a malpractice insurers perspective, if you sue enough clients eventually you are going to have a claim. Once a counter claim is made against a firm because of fee suits, the firm becomes one of the least desirable attorney malpractice insurance risks. This is especially true if the law firm refuses to change its practice of suing clients to collect legal fees.
Attorneys can become upset when they find out that suing clients for unpaid legal fees can cause their malpractice insurance premiums to increase. In fact, with many admitted attorney malpractice insurers as few as 5 (or less) fee suits in a 2 year period for unpaid legal fees can cause the carrier to decline to write, non-renew your insurance, or add restrictive policy exclusions.
Attorneys state, “I understand all that, but I do not like having a legal malpractice insurer telling me how to practice law. Give me a carrier that does not care about suing clients for fees.”
For the most part the only carriers that ‘do not care’ about fee suits are non-admitted attorney malpractice insurers or insurers that will soon be out of business. Insurers that will write such firms tend to charge significantly more for the ‘privilege’ of suing clients for fees.
“So how do I get paid if I do not sue to collect from clients that refuse to pay?”
The law firm needs to change its ways. Some simple tips will result in fewer poor paying clients:
- Client selection. If the client does not have the resources to pay you at the engagement, likely client will not have the resources at the end of the engagement. No sense is doing work for free.
- Client communication. Make sure to communicate with your client through written and oral progress with periodic updates on matters. Treat your clients with dignity and respect. If there is bad news to communicate, do it in person or at the very least by a phone call. And do it promptly.
- Staff communications. Make sure that your staff handles incoming and outgoing communications promptly, communicates clearly and concisely in a respectful manner.
- Client Retainers. Do not be afraid to ask for the retainer for your services up front where appropriate. Either for all of or a large portion of the services.
- Client Billings. Make sure to keep on top of your billings. Bill promptly, follow-up for past due receivables, and if account becomes past due, communicate with the client to find out why. Don’t put off this conversation. Remember many times a client is upset with something and therefore the bill is not being paid.
- Choose your battles carefully. If the balance is small or there are serious issues as to how the services have been rendered, you may just want to write this one off. If the client now has no money, you can’t get blood out of a turnip.
- As a very last resort. If the firm is large enough, a committee should decide which accounts should go to suit.
- Wait for the statute to run. No sense inviting a retaliatory claim without this defense.
Many law firms never sue for fees because of client procedures, their practice areas, or firm philosophy. As far as your attorney malpractice insurer is concerned, zero is the best number. An attitude of “it’s okay to sue clients for fees and it is my right” will increase your malpractice premiums.
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Lee Norcross, MBA, CPCU
Managing Director, CEO
(616) 940-1101 Ext. 7080